June TSF and loans remained weak, while expectations for policy support in 2H are rising

Overview

This report focuses on the impact of China’s June TSF, RMB loans, deposits, and money supply data on the banking sector. The core judgment is that quarter-end factors brought sequential improvement, but both aggregate volume and structure still indicate weak financing demand in the real economy, with loan growth continuing to decline; against the backdrop of an economic slowdown since 2Q, coordination among fiscal spending, government bond issuance, and accommodative monetary policy is likely to strengthen in 2H.

Core views

The report believes that June TSF and new RMB loans were still weaker than the same period last year and market expectations, with loans making an increasingly weaker contribution to TSF; medium- to long-term corporate loans fell sharply year on year, and although household loans turned positive sequentially, they remained below historical levels. Meanwhile, government bonds, corporate bonds, and equity financing remained important supports for TSF. On the policy side, the PBOC monetary policy committee’s 2Q meeting maintained an accommodative stance and emphasized countercyclical and intercyclical adjustment as well as fiscal-monetary coordination; therefore, the report expects policies supporting domestic demand to be rolled out more quickly in 2H. For bank stocks, slower loan growth is a pressure point, but charge-offs and balance-sheet clean-up may help stabilize net interest margins and revenue, and the report continues to prefer large banks.

Analysis framework

The report uses a monthly financial data tracking framework to compare indicators such as new TSF, new RMB loans, government bonds, corporate bonds, equity financing, off-balance-sheet financing, deposits, and M1/M2 growth on a year-on-year, month-on-month, and consensus-expectation basis, and further analyzes their implications for real-economy financing demand, policy timing, bank loan growth, net interest margins, and sector allocation.

Methodology notes

• Macro Credit AnalysisTSF and Credit Impulse Tracking

  Assess real-economy financing demand and the strength of credit expansion through new TSF, RMB loans, and growth in outstanding balances.

  The sequential improvement in June TSF and loans was mainly driven by quarter-end factors, but both were lower than last year and below expectations, indicating that underlying credit demand remains weak.

• Policy AnalysisFiscal-Monetary Policy Coordination Framework

  Observe government bond issuance, changes in fiscal deposits, and PBOC policy language to judge the pace of policy support in 2H.

  The slowdown in government bond issuance and the PBOC’s accommodative guidance together point to potentially faster fiscal spending and government bond issuance in 2H to support domestic demand and stabilize growth.

• Banking Fundamentals AnalysisLoan Structure and Deposit Structure Analysis

  Assess banks’ income and risk characteristics through corporate loans, household loans, bill financing, deposit flows, and charge-offs/clean-up.

  Weak medium- to long-term corporate loans and insufficient household credit demand are weighing on loan growth, but charge-offs and balance-sheet clean-up may provide marginal support for net interest margins and revenue stability.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• China Large Banks

  They benefit from expectations of policy support and relatively stable operating performance, making them the report’s preferred banking sub-sector.

  Strengths

  Greater corporate business exposure, stronger operating resilience, and more reasonable dividend yields.

  Weaknesses

  Overall loan demand is weak, and outstanding loan growth continues to decline.

  Comparison

  Compared with banks that rely more on retail credit demand or have weaker asset-quality elasticity, large banks are more defensive.

  Risks

  If real-economy financing demand remains subdued or net interest margins continue to face pressure, earnings recovery at large banks may also be constrained.

• CCB-H

  Listed by the report as one of its top picks in China’s banking sector.

  Strengths

  Included in the report’s preferred large-bank basket, with a previous closing price of HKD8.19.

  Weaknesses

  The report does not disclose a standalone earnings forecast, target price, or specific rating.

  Comparison

  Like BOC-H, it is one of the report’s preferred large banks.

  Risks

  Subject to common sector risks, including weak credit demand, slowing loan growth, and a macro recovery that falls short of expectations.

• BOC-H

  Listed by the report as one of its top picks in China’s banking sector.

  Strengths

  Included in the report’s preferred large-bank basket, with a previous closing price of HKD5.10.

  Weaknesses

  The report does not disclose a standalone earnings forecast, target price, or specific rating.

  Comparison

  Like CCB-H, it is one of the report’s preferred large banks.

  Risks

  Subject to common sector risks, including weak credit demand, slowing loan growth, and a macro recovery that falls short of expectations.

• China Banking Sector Overall

  TSF and loan data are important driving variables for sector asset growth, revenue, and policy expectations.

  Strengths

  Fiscal and monetary policy support in 2H may improve the macro environment, while charge-offs and balance-sheet clean-up may help stabilize revenue and net interest margins.

  Weaknesses

  Outstanding loan growth has fallen to a historical low of 5.2%, and real-economy financing demand remains persistently weak.

  Comparison

  Within the sector, the report is more inclined toward large banks rather than broadly bullish on the entire banking sector.

  Risks

  If policy implementation is slower than expected and household and corporate financing demand remains weak, sector valuation and earnings recovery may come under pressure.

Key data

• June New TSFRMB3.4 trillionHigher than RMB2.0 trillion in May, but below RMB4.2 trillion in June 2025 and the consensus expectation of RMB3.7 trillion.
• TSF Outstanding Growth7.4% YoYContinued to slow from 7.7% in May.
• June New RMB LoansRMB1.6 trillionHigher than RMB520 billion in May, but below RMB2.2 trillion in June 2025 and the consensus expectation of RMB1.9 trillion.
• Outstanding Loan Growth5.2%Fell to a new historical low.
• June Government Bond FinancingRMB768 billionLower than RMB1.2 trillion in May; the report believes this implies that more fiscal support may be needed in 2H.
• June Corporate Bond FinancingRMB401 billionHigher than RMB242 billion in the same period last year and RMB168 billion in May, showing that companies are using the low-rate environment to reduce financing costs.
• June Equity FinancingRMB63 billionSupported by fundraising from listings of innovative technology companies, maintaining strong momentum.
• June Corporate LoansRMB1.5 trillionHigher than RMB637 billion in May and still the main source of new loans; however, medium- to long-term corporate loans were down 45% from June last year.
• June Household LoansRMB26.5 billionTurned positive from a decline of RMB14.1 billion in May, but remained below historical levels, indicating that household credit demand is still weak.
• June New DepositsRMB2.0 trillionHigher than RMB1.8 trillion in May, but below RMB3.2 trillion in June 2025.
• Change in Fiscal DepositsDown RMB939 billionClose to the RMB1.1 trillion decline in June 2023, reflecting faster government spending after the tax period and seasonal factors.
• Money Supply GrowthM1 at 8.0%, M2 at 4.0%The report says both declined from May, pointing to moderate quarter-end liquidity tightening and weaker economic activity since 2Q.

Impact & implications

For the banking sector, weak TSF and low loan growth mean pressure on asset expansion and credit demand, and bank loan growth may gradually slow; however, stronger policy support, faster government bond issuance, and increased fiscal spending in 2H could improve the macro outlook. The report believes that in this environment, large banks are better suited as the focus of sector allocation because of their greater corporate business exposure, stronger operating resilience, and more reasonable dividend yields.

Risks

• Financing demand in the real economy remains weak, and growth in new loans and TSF continues to come in below expectations.
• Weak medium- to long-term corporate loans indicate that corporate investment intentions remain cautious.
• Although household credit demand turned seasonally positive, it remains below historical levels, suggesting that household deleveraging pressure has not fundamentally dissipated.
• Outstanding loan growth has fallen to a historical low, which may weigh on banks’ asset expansion and interest income growth.
• If fiscal spending and government bond issuance do not accelerate in 2H, the stabilizing effect of policy support may be insufficient.
• Greater market volatility and fewer investment opportunities may affect deposit flows and wealth-management fund flows at non-bank financial institutions.

What to watch

• Whether government bond issuance and fiscal spending accelerate in 2H.
• The implementation pace of the PBOC’s accommodative policies and countercyclical and intercyclical adjustment measures.
• Whether new TSF and RMB loans recover to levels above the same period last year or above expectations.
• Whether medium- to long-term corporate loans improve, to verify a recovery in corporate investment appetite.
• Changes in household loans and household deposits, to assess consumption and household balance-sheet repair.
• Changes in banks’ net interest margins, charge-offs, revenue stability, and loan quality.
• Subsequent updates to ratings, target prices, and earnings forecasts for CCB-H and BOC-H.